Q1 GDP: 2.5% annualized growth; Update: “Disappointing,” says CBS

posted at 8:33 am on April 26, 2013 by Ed Morrissey

Today’s GDP report was perhaps a bit … unexpected, given the recent durable-goods order report for March. Positive growth returned, albeit to stagnation level, in the first quarter of 2013:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.5 percent in the first quarter of 2013 (that is, from the fourth quarter to the first quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.4 percent.

The Bureau emphasized that the first-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency (see the box on page 3 and “Comparisons of Revisions to GDP” on page 5). The “second” estimate for the first quarter, based on more complete data, will be released on May 30, 2013.

The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased.

Don’t break out the bubbly just yet. Much of this growth came from “an upturn in private inventory investment,” meaning that final sales were significantly lower. In fact, real final sales of domestic product — sales minus inventory expansion — only grew 1.5% in Q1. That’s actually lower than Q4’s final real final sales figure of 1.9%.

However, there was better news in consumer purchasing:

Real personal consumption expenditures increased 3.2 percent in the first quarter, compared with an increase of 1.8 percent in the fourth. Durable goods increased 8.1 percent, compared with an increase of 13.6 percent. Nondurable goods increased 1.0 percent, compared with an increase of 0.1 percent. Services increased 3.1 percent, compared with an increase of 0.6 percent.

Bear in mind that economists have been lamenting the depressive impact of the expiration of the payroll-tax-holiday at the beginning of the quarter. As I have said all along, that’s nonsense. PCEs didn’t increase when the payroll-tax holiday was implemented (in fact, the growth level dropped all through 2011 as compared to 2010), and its expiration wasn’t going to decrease it. That consumer activity still didn’t get the US economy to push past the 1.5% increase in real final sales, though, and we are still sputtering along in stagnation.

The U.S. economy failed to gather as much steam as expected in the first quarter, potentially setting up another year of sluggish gains with signs already emerging of slowing hiring and investment. …

Economists surveyed by Dow Jones Newswires had forecast a 3.2% annualized expansion. Still, the GDP gain represented a rebound from the 0.4% growth in the prior quarter.

The economy has now grown for 15 consecutive quarters, but the average pace—just above 2% annually—is weak by historical standards.

The primary driver of the faster growth was a pickup in consumer spending. Personal-consumption expenditures grew 3.2%, the best pace since the end of 2010.

The numbers suggest that at least initially, American’s weren’t hamstrung by a January tax increases, although other government data suggested consumers began to slow their spending in March after a strong start to the year.

What was going on in March? Oh yes, the Nightmare on Sequester Street hyperbole.

The U.S. economy grew 2.5 percent in the first three months of 2013, undershooting many forecasts that expected stronger growth.

Many economists had expected growth of 3 percent or higher. The increase in GDP, which represents the government’s initial estimate of economic output in the period and which is subject to revision, is not fast enough to support significant job-creation. The economy expanded at a meager 0.4 percent rate in the fourth quarter of 2012 and 2.2 percent for the year. …

For now, as the latest economic figures show, victory remains elusive. Plunging job-creation in March stirred fears that the economy was sputtering after two straight months of solid job growth. Retail sales shrank last month as consumers pulled back on spending. That appeared due to a move by Congress and President Barack Obama to allow Social Security taxes to rise in January, which reduced people’s paychecks and eroded their purchasing power.

Elsewhere in the economy, orders for aircraft and other big-ticket items also have sunk in recent weeks, indicating that companies expect business to slow.

All of which we knew, by the way, yesterday. So why were economists expecting to hear better news than this? Frankly, I was surprised the Q1 GDP came in as high as it did on the initial estimate.

The numbers suggest that at least initially, American’s weren’t hamstrung by a January tax increases, although other government data suggested consumers began to slow their spending in March after a strong start to the year.

I read somewhere yesterday that there is a $2 trillion under-the-table economy which is the only thing keeping us afloat.

esr1951 on April 26, 2013 at 8:53 AM

Which is why if our beloved elected representatives really cared about increasing revenue to the federal government, they’d abolish the income tax and institute a fair tax. But that would take away the class warfare card from the Dems.

And speaking of Decades of recovery…..I remember the last one that happened from about oh, 1982 to oh about 1992. Oh, that’s right it was a guy named Ronald Reagan (the name that must be forgotten).

Jennifer Rubin, on the list.

Tear down this icon: Why the GOP has to get over Ronald Reagan

The Republican Party may survive, but only if its politicians, activists, donors and intellectuals rethink modern conservatism and find new issues to defend and new arguments with which to defend them. The public face of the GOP can no longer be aging, ill-tempered Reaganites such as John McCain and Jim DeMint but must give way to a diverse, media-savvy generation that understands the America we actually live in. Only then can the essence of conservatism — the promotion of personal liberty — survive, and the GOP along with it.

In the months since Romney’s defeat, there has been a great deal of angst about the party’s future. Some Republicans, such as Karl Rove and his American Crossroads super PAC, are certain that the GOP has a personnel problem and are determined to weed out self-destructive candidates. But the problems are more serious than simply who is winning primary races. This is not a matter of individually competent candidates but of the GOP’s outdated worldview.

When Sen. DeMint (R-S.C.)decamped in January from Congress to a venerated conservative think tank, the Heritage Foundation, it was not to foster intellectual dialogue, innovation or self-examination. It was to be louder and more resolute on principles that voters had rejected in two national elections. Now DeMint fights innovation on immigration reform, same-sex marriage, economic policy and anything else that could propel the party out of the 1980s. He insists that the GOP’s problem is simply bad marketing. “Conservative policies have proved their worth time and time again,” he wrote in The Washington Post in January. “If we’re not communicating in a way that makes that clear, we are doing a disservice to our fellow citizens. We need to test the market and our message to communicate more effectively.”

The irony could not be greater.

No, Ms. Rubin it could not.

pppssssttttt, forget that economic growth. He was such a dunce remember??

Here we jack around with year after year of a smiling, apparently genial dunce or evil wannabe dictator (we have trouble deciding). All the while the gop stumbles, enables and generally is incapable of ANY EFFECTIVE OPPOSITION. And yet, we should turn our backs on the time-tested truths, that need an effective communicator. Kind of like Socialism now having a smiling and genial salesman with a wife with toned arms.

See we’re looking for the next Reagan, or the flip side of Obama you might say……….but all we keep finding are Gerald Fords in the gop.

Ronald Reagan inherited a Long Recession. The economy declined 0.3 percent in 1980, grew at a subpar 2.5 percent in 1981, and then plunged 1.9 percent in 1982. The lengthy downturn was really the culmination of more than a decade of bad economic policy. But the Reagan Recovery was stunning. GDP rose 4.5 percent in 1983 and 7.2 percent in 1984. It was Morning in America, and Reagan won reelection by a landslide.

Barack Obama also inherited a Long Recession. According the National Bureau of Economic Research, the U.S. economy entered recession in 2007 and stayed there until June 2009. But the Obama Recovery has been terribly weak. The economy grew at a 2.8 percent pace in the second half of 2009, 3.0 percent in 2010, and—according to new Commerce Department data—1.7 percent in 2011. We’ll see what happens in the 2012 election, but Obama’s current approval rating is 43 percent, according to Gallup.

As economist Lawrence Kudlow of CNBC notes:

After 10 quarters of recovery, the Reagan growth rate was 6 percent. Compare that with Obama’s 2.4 percent. Or compare Obama’s 2.4 percent with the 4.6 percent post-World War II average recovery rate after 10 quarters.

Happy Nomad, where did I say I was happy with the results? Positive growth is better than negative growth, hence we are moving in the right direction, no? Can you comprehend that?

stuckinwisconsin on April 26, 2013 at 9:04 AM

Can you comprehend the terms ‘bullsqueeze’, ‘false’, and ‘lies’? If you believe what this government is telling you about the economy, unemployment, and – well, much anything else, than you’re not very bright.

Happy Nomad, where did I say I was happy with the results? Positive growth is better than negative growth, hence we are moving in the right direction, no? Can you comprehend that?

stuckinwisconsin on April 26, 2013 at 9:04 AM

You consider stagnation level growth a positive after this many months of mismanagement and lies by the rat-eared coward? Really. Even if you can believe the numbers, 2.5% is pathetic. You do understand that right? I ask because clearly you aren’t particularly bright to think that this is good news.

At this point, annualized real GDP growth of 2.5% means the economy is still decaying. The more illustrative number is GDP growth per capita, which takes accounts for population growth as well. In that regard, we are still more than 1.5% below the high of Dec. 2007, and would need much higher growth just to return to where we were.

With liberalism in all its forms failing worldwide, the Left needs a hero even if they have to make one up. And we all know how good liberals are at making things up.

Liam on April 26, 2013 at 9:37 AM

True enough but it is getting ridiculous. The rat-eared coward talks of his love of going skeet shooting. And the world laughed at the very concept. The media finds one picture taken at Camp David where the rat-eared coward is holding a gun. And you would have thought from the reporting that is was massive vindication. Crappy economic numbers are treated as if the economy is booming even as more and more people are on food stamps or other assistance. And then there is that whole 90% of Americans want greater gun control lie that is STILL being repeated as if it were true.

In the last days of Imperial Russia, the state would spruce up the facades of buildings facing the railroad tracks where the Tsar traveled to deceive him about just how miserable life was for ordinary Russians. I am reminded of that when I look at the way the left completely ignores reality to paint a facade that only a very stupid and lazy idiot like the rat-eared coward could believe.

I am reminded of that when I look at the way the left completely ignores reality to paint a facade that only a very stupid and lazy idiot like the rat-eared coward could believe.

Happy Nomad on April 26, 2013 at 9:51 AM

That’s the thing — they need to believe it. The only thing worse to happen in their lifetimes was the collapse of the Soviet Union, which was done without a full scale war. Liberals could have lived with the US defeating Russia with a superior military, but instead the system crashed in on itself. That’s intolerable to the Left.

They made gains here and especially in Europe, but while our libs are trying to build up to the Euro model, the Euros are trying to dismantle at least some of their system. It’s not working as planned, and that horribly upsets the Left. Here, already, the signs of eventual failure are showing. Couple that with the American tradition of liberty being so strong the gun-grabbers failed glaringly, and liberals are very unhappy campers.

I have said for a long time Americans are becoming generally more angry with and suspicious of each other. Now, too, studies show a deep-seated and widespread emotional depression setting in. I can understand it. For us, it’s that our once-great nation is being carried to hell by crooked politicians, judges, and bureaucrats elected and protected by liberals. For liberals, their dreams of Utopia are not working for them at all; they should have everything by now.

At last they can see Obamacare, for example, is not to going to pan out they way they expected; liberals for the first time will also have to pay in a big way. That wasn’t supposed to happen, or so they believed.

Reality is a b*tch, and at long last liberals, too, are married to her.

Frankly, I was surprised the Q1 GDP came in as high as it did on the initial estimate.

It will be revised downward next month. Obama’s admin always gives the best possible news it can at first an only after a couple weeks or months does the real figures come out. Mostly on friday evenings.

Steal money from one man and give it to another, and that man spends the money. How long can that go on?

Mimzey on April 26, 2013 at 10:26 AM

as long as the world continues to accepts dollars as currency which it will continue to do as long as we provide their defense. Remove either point and the entire house of cards of socialism falls. Just like how the USSR/eastern bloc fell.

It will be quick and painful. And 100 million people will be forced into poverty.

At this point, annualized real GDP growth of 2.5% means the economy is still decaying. The more illustrative number is GDP growth per capita, which takes accounts for population growth as well. In that regard, we are still more than 1.5% below the high of Dec. 2007, and would need much higher growth just to return to where we were.

RadClown on April 26, 2013 at 9:14 AM

Very interesting, even if you overstated what’s happening slightly. The situation is that GDP per capita is below the long-term historical trend, and its rate of growth is below the rate of growth of said historical trend. In short, the economy is stagnant.

Now, if we had duplicated 2012Q4’s numbers, that would be a continued decay as current population growth is approximately 0.75% per year. Something tells me that’s on deck.

For now, as the latest economic figures show, victory remains elusive. Plunging job-creation in March stirred fears that the economy was sputtering after two straight months of solid job growth. Retail sales shrank last month as consumers pulled back on spending. That appeared due to a move by Congress and President Barack Obama to allow Social Security taxes to rise in January, which reduced people’s paychecks and eroded their purchasing power.

Elsewhere in the economy, orders for aircraft and other big-ticket items also have sunk in recent weeks, indicating that companies expect business to slow.

There is NO mention of the Federal Reserve’s “All-In” QE Forever initiated in December.

The Fed increased its spending to $ 85 billion/month purchasing US debt and Mortgage Backed Securities.

So for about $ 1 trillion/year in “assets” being added to the Fed’s balance sheet all that has been achieved was TWO MONTHS of just above stall speed ‘growth’ – except it isn’t enough because of increases in population – it is just enough to make the Too Big Too Fail / Too Big Too Jail banks a lot of money.

If interest rates go back to historical norms, the $ 4 trillion in assets on the Federal Reserve’s balance sheet by the end of this year are going to become liabilities as their value drops and the losses mount.

For this set of revisions the BEA assumed annualized net aggregate inflation of 1.20%. In contrast, during the first quarter the seasonally adjusted CPI-U published by the Bureau of Labor Statistics (BLS) recorded a 2.10% annualized inflation rate. As a reminder: an understatement of assumed inflation increases the reported headline number — and in this case the BEA’s relatively low “deflater” (nearly a full percent below the CPI-U) boosted the published headline rate. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a much more modest 1.63%.

For this set of revisions the BEA assumed annualized net aggregate inflation of 1.20%. In contrast, during the first quarter the seasonally adjusted CPI-U published by the Bureau of Labor Statistics (BLS) recorded a 2.10% annualized inflation rate. As a reminder: an understatement of assumed inflation increases the reported headline number — and in this case the BEA’s relatively low “deflater” (nearly a full percent below the CPI-U) boosted the published headline rate. If the CPI-U had been used to convert the “nominal” GDP numbers into “real” numbers, the reported headline growth rate would have been a much more modest 1.63%.

dogsoldier on April 26, 2013 at 12:58 PM

Oh. SNAP!

Say, does anybody have a historical comparison between the BEA deflator and the BLS CPI-U?

Just as a note – the BEA uses “chained” dollars, which is not the same as either CPI-U or chained CPI-U (C-CPI-U). Since 1980, the BEA deflator has averaged 0.58 percentage points lower than the CPI-U, and since 2002, it has averaged 0.18 percentage points lower. However, since 2002, the BEA deflator has averaged 0.24 percentage points higher than C-CPI-U.

Frankly, I was surprised
the Q1 GDP came in as high as it did on the initial estimate.

So was I. One explanation might be refund checks to the 47%ers who went out and bought stuff that they didn’t/couldn’t in December during the holidays. Pent up demand etc. Now that that’s gone, we’ll see what’s in 2nd Q.